A credit (derived from latin credere "“believe"” and creditum "“in good faith entrusted"”) is entering a money debt with temporally retarded repayment. A credit is called also loan.

The classical understanding of "“credit"” continues to seize the term somewhat - beyond the pure legal relation. With someone meant "“something assets"” have "“credit"” in the sense of confidence to therefore enjoy that one is solvent and thus credit worthy. Example: The arrangement credit of a current account is a credit in the broader sense, a confidence proof, as long as it becomes "“granted"” only. If the arrangement credit is actually taken up, a credit in (closer) the sense of a legal relation, a loan develops.

Granting of credit

Banks lend money in the form of credits, which to them by the banking customers (non-banks) in the form of inserts at the disposal one put. Additionally credits can be taken up with central banks for refinancing. By the granting of credit the business banks operate always also granting of credit of a clearing bank must by inserts and own capital funds of the bank be covered. Here are various supervision-legal requirements of the BaFin to fulfill to the German Federal Bank and the EZB. With the granting of credit a bank adheres by financing rules, among other things to the golden bank rule, in order to minimize their financing risk.

From the credit request to the credit disbursement

• Credit request of the customer
• Examination of the creditworthiness
• Examination of the credit-worthiness (also economic creditworthiness called)
• Examination of the offered credit collateral
• Promised credit
• Conclusion of the credit agreement
• Position of the credit collateral
• Supply of the credit (with consideration of the conditions for disbursement), e.g. by credit note on the current account

Kinds of credits

One differentiates between the among other things following kinds of credit:

• after the running time:
  • at short notice (e.g. bank overdraft, Lombardkredit, discount credit or credit in blank) (up to 3 months, partly up to 1 year)
  • medium-term (until 4 years)
  • on a long-term basis (over 4 years)

• according to the kind of the recourse to of the credit:
  • revolvierend: A credit framework is made available to the applicant for the credit, within whose it can have credit. If a part is re-imbursed, the amount can be taken up again.
  • uniquely: Paid back amounts cannot be used no more.

• after the provision of security:
  • unsecured (unsecured loan)
  • secured (e.g. mortgage credit, discount credit, endorsement credit)

• after the height:
  • Small loan
  • Large credit
  • Million-credit

• according to the kind of the supply:
  • Cash credit (e.g. arrangement credit, bank overdraft)
  • Consumption credit
  • Credit-borrow (e.g. credit by way of bank guarantee, credit in blank)

• after the use:
  • Konsumkredit (e.g. installment credit, saving loan with a building company)
  • Productive credit (e.g. working capital credit, Saisonkredit)

• after the credit giver:
  • Bank credit
  • Credit granted by suppliers
  • Employer loan
  • Relative loan
  • National credit

Documentary credit is a credit in the foreign trade business.

It exists to take up also the possibility a credit in a foreign currency, like e.g. Japanese Yen or Swiss Franconia (foreign currency credit). The Zinsniveau can be more favorable here than during the euro-financing. The risk exists however in the change of the rate of exchange between euro and foreign currency.

Provision of security of the credit

The applicant for the credit takes up the credit generally with a bank, a savings bank or other Kreditinstitut. The latter expects as a rule collateral in the value of the taken up sum or a majority of it in one of the following forms:

• Mortgage liens (mortgage or land charge) on a property,
• of demands, rights or mobile things (not to confound with seizing)
• Transfer (assignment) of demands approximately third to the bank
• Transfer by way of security of mobile things
• Endorsement
• or by other collateral (e.g. Change with the discount credit).

See also for this credit safety device

Credit interests

An applicant for the credit receives money with the obligation to pay the borrowed amount back plus interest at the agreed upon time. The interest is indicated as a rule as annual interest and in per cent per annum ("“% per annum"”).

There are also interest-free loans - particularly for operating establishments and publicly promoted building projects. In the context of different advancement programs of the European community, the federation, the countries or municipalities also interest subsidies or interest reducing can be taken up by the applicant for the credit.

The interest rate realigns itself above all

• the running time of the credit
• the interest connection period, which is shorter usually than the credit period,
• the soil quality (credit-worthiness) of the applicant for the credit,
• the collateral posed,
• the momentary and the expected Zinsniveau.

In smaller measure the interest rate affected of

• the general economic situation of the state concerned
  • and/or with foreign currency credits of that state, to whose currency the credit is taken up, and
• of the planned project, for which the credit is to be used.

Investment loans

The investment loan serves for the financing of the fixed assets (like properties, building, machines, vehicles etc.). The running time credit for investments depends on the service life of the Investitionsgutes. Everything which is used on a long-term basis, should are also on a long-term basis financed! Credits represent outside capital for enterprises. Repayment and interest must be paid and reduced from the cash-flow the profit.

Working capital credit

Working capital credit is a short term credit for the financial bypass of the time interval between the accumulation of expenditures for the procurement and appropriate proceeds of sale. It serves for the financing of goods, raw, auxiliary and fuels as well as the Vorfinanzierung of other current expenditures. Working capital credit usually is revolvierend.

Notice

The notice is the one-sided explanation of the borrower or money lender for the completion of the loan agreement.

Mortgage loans of the mortgage banks are not subject to notice on the part of the bank with stipulated completion. The customer can quit against it the loan to certain contractually agreed upon dates in writing, usually with expiration of the interest fixing. With premature notice during the interest connection period on the part of the applicant for the credit the bank is justified to raise a whose calculation method of the BGH is fixed.

With interest fixing of more than 10 years the borrower can quit at expiration of 10 years under adherence to a certain term of notice after "§ 609a BGB, without for it a is computed.

Notes

• The credit is not a currency.
• For some legal questions - e.g. with pecuniary difficulties, bankruptcy and the like, there are credit defense associations.

Literature

• Falter, Manuel: "“The practice of the loan business, 16. Edition"”, German savings bank publishing house, 2004, ISBN 3-09-301520-0
• Borchert, Manfred: "“Money and credit"”, Oldenbourg, 2003, ISBN 3-486-27420-1

See also

• Participation capital
• Management economics
• Loan
• Emission credit
• Promotion capital
• Outside capital
• Foreign currency credit
• International Monetary Fund
• Investment
• Lump risk
• Bank overdraft
• Konsortialkredit
• Micro credit
• Pledge release
• Refinancing
• Repayment carrier
• Debt ratio
• Political economy
• Currency
• World trade

Related links

• Federal Statistical Office with numbers to the bank and loan industry
• KWG (credit system law)
• KfW

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